Mediaset: look away now
Silvio Berlusconi has found himself in a weakened position, much like his Italian broadcaster
Silvio Berlusconi had to avert his gaze from a topless female protester when he voted on Sunday in Italy’s national elections. The media mogul and former prime minister could have been forgiven for flinching when the result was reported, too. The centre-right coalition he fronted did not do as well as he hoped. This makes things harder for Mr Berlusconi’s broadcaster Mediaset at home. Its overseas interests should compensate.
Mediaset, controlled through Mr Berlusconi’s holding company Fininvest, managed to increase its share of Italian television advertising to just under 60 per cent in the nine months to September. TV accounts for almost two-thirds of total Italian ad spend, but it is shrinking. Last year, it fell almost 2 per cent
Rival state broadcaster RAI receives both a licence fee and ad revenue. Mediaset had hoped the regulator might restrict how much RAI could make from commercials. If the populist Five Star Movement, which got more votes than expected in the election, manages to form a government then those hopes would dim. This partly explains Monday’s 5 per cent fall in Mediaset shares.
Another concern will be Mr Berlusconi’s weakened position in any negotiation with Vincent Bolloré’s Vivendi. The two companies are locked in a legal battle over the alleged breach of the former’s agreement to acquire assets from the latter. The next hearing is not until October. Analysts had pencilled in anywhere from €750m to €1bn of payments from Vivendi should it lose this case, adding a quarter to Mediaset’s value.
Having said all this, Mediaset is not just about Italy. Excluding both the group’s holdings in Mediaset España — of which Mediaset owns more than half — and its infrastructure segment EI Towers, core Italian broadcasting represents 40 odd per cent of the group’s market value. Spain made all the group’s profits in 2016, and should do much the same in 2017 — full-year results are due next month. Though ad revenues were flat at Mediaset España, last year it lifted profits smartly via cost cutting. EI Towers business, for now, provides a stable income stream. A hoped-for merger with RAI’s tower business may, however, be postponed.
The election has diminished the standing of Mr Berlusconi. Sluggish ad spending is having the same effect on Mediaset. Mercifully for investors, businesses can resist obsolescence for longer than politicians.